To Crash or Not to Crash, That’s Another Question

By Inya Ivkovic, MA Published : September 11, 2006

For years, we’ve been waiting for the U.S. housing market to crash. The fact remains that the market conditions are deteriorating every day, although we’re not seeing the dramatic collapse that we saw, for example, when the tech market crashed. For now, it seems as though the bad news is traveling north and turning left, towards Western Canada, fast and furious.

According to several economists, the red-hot home prices in Calgary and Vancouver are no longer sustainable. The sector is very likely to experience severe price drops. “Why,” you ask? “Canada’s real estate market is not as prone to speculation, and our economy is plugging along just fine, right?”

It’s true; Canada’s real estate market never fancied the boom-and- bust strategy that we have seen in the U.S. over the past decade or so. And true, there is a lesser degree of speculation here, which you can see in the less dramatic price increases. Ah, if only Canada was a magical economy — impacted only by positives and capable of bouncing off all the negatives.

Alas, it is not. The first worrisome factor for Canada right now is the state of the U.S. economy. It is clearly slowing, and through the ripple effect, our real estate market is bound to pay at least part of the price.

The second factor is the oil boom in Western Canada. Thanks to it, house prices have been going up in Western Canada more so than they have been in any other region. Consequently, Western Canada will likely see those prices plunge faster than they will in any other region as well. In fact, home prices in other regions, such as Toronto, have already gone through a cooling down period without too much drama. Western Canada’s real estate market should be so lucky.